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Sep 24, 2018

Brent crude breached $81 a barrel on Monday — its highest level in nearly four years — on the back of a tightening oil market and OPEC leaders signaling they won't be immediately boosting output.
Global benchmark Brent crude
rose as high $80.94, its strongest level since Nov. 21, 2014. It was
last trading up $1.82, or 2.3 percent, at $80.62 a barrel on Monday by
10:50 a.m. ET (1450 GMT), after having climbed from $71 in the last five
weeks.
Meanwhile, U.S. West Texas Intermediate crude was up $1.38, or 2 percent, $72.16.
J.P. Morgan wrote in its latest market outlook that "a spike to $90 per barrel is likely" in the coming months thanks to U.S. sanctions on Iranian oil exports,
which have fallen dramatically in recent months as importers brace for
the impending penalties. The bank forecasts Brent and U.S. benchmark WTI
prices to average $85 and $76 per barrel, respectively, in the next six
months.
A meeting of OPEC and non-OPEC oil ministers
in Algiers over the weekend concluded with the 15-nation cartel and its
allies refraining from an urgent boost in output, despite President
Donald Trump's demands that it work harder to bring down prices. The
ministers said they would increase output only in the event that
customers wanted more cargoes.
Monday's fresh multiyear
high for Brent was always on the cards, said Stephen Brennock, oil
analyst at PVM Oil Associates in London.
"Price risks remain skewed to the upside in the run-up to looming U.S. sanctions
on Iranian oil exports. This outlook has been cemented by inaction on
the part of OPEC+ over the weekend, which has in effect green-lighted a
forthcoming supply squeeze," he told CNBC.
The analyst sees the
current bout of upward buying pressures persisting through to the end of
the year, but warned that the outlook for 2019 was a different story.
"The oil balance in the
early part of 2019 makes very bad reading for oil bulls with a sizable
supply surplus penciled in by the leading energy agencies," he said.
"This will inevitably take the steam out of the current upswing in oil
prices."

Iran sanctions loom

The impact of U.S. sanctions on Iran's oil sector
will be deeper than what many have expected, said Peter Kiernan, Lead
Energy Analyst at the Economist Intelligence Unit.
"Should cuts to Iranian
oil exports end up being quite severe, OPEC will find it difficult to
pick up the tab completely," he told CNBC. "OPEC insists that the market
is still 'well supplied,' but the pressure to relax output will
heighten if prices continue to rise, adding an interesting dimension to
the Trump administration's efforts to try to isolate Iran by denying it
crucial oil revenue."
The Trump administration
has been pressuring its allies to cut their Iranian oil imports down to
zero since its decision to withdraw from the Iranian nuclear deal in
May. South Korea has dropped its imports to nearly zero, but Japan and
Turkey have had little marked decrease in theirs. India's imports from Iran
in August were actually up 56 percent from the same month last year,
due to large discounts offered by the Islamic Republic since the
sanctions were announced. A number of Asian countries, major customers
of Tehran, have asked for waivers from Washington's restrictions.
Iran's oil exports
averaged 2.1 million barrels per day (bpd) over the last year, and
analysts say sanctions will likely take between 500,000 and 1 million
bpd off the market.
OPEC and Russia have
pledged to increase production to meet any shortfall created by an
anticipated fall in Iranian crude oil production, but no official decision has been made yet.

Oil ministers at the weekend's summit in Algiers
stressed the strength of their supply in order to convey their ability
to stabilize the markets in the face of shortfalls.
"Member countries over
the last three months since June have responded in a very good way and
have opened the taps and provided a lot of supply to offset decreases in
Iran, decreases in Venezuela, decreases in Mexico, and markets are
quite balanced today," Saudi oil minister Khalid Al-Falih told CNBC on
Sunday. "There is plenty of supply to meet any customer that needs it."
Indeed, the International Energy Agency's (IEA) latest oil report
noted that global oil supply hit a record high in August of 100 million
bpd, even amid collapsing output from Venezuela and looming sanctions
on Iran, which is OPEC's third-largest producer.
But the IAE's findings
emphasized the tightening market, noting that a disruption in any major
producer could lead to a material impact on prices. "We are entering a
very crucial period for the oil market," the report stressed.

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